Reference no: EM132616297

Question - A Comprehensive Problem

SUI sells presses. At December 31, 2002. SUI's inventory amounted to $500,000. During the first week of January 2003, the company made only one purchase and one sale. These transactions were as follows:

Jan. 5 Purchased 60 machines from Double, Inc. The total cost of these machines was $40,000, terms 3/10, n/60.

Jan. 10 Sold 30 different types of products on account to Air Corporation. The total sales price was $28,000, terms 5/10, n/90. The total cost of these 20 units of LLP was $10,000 (net of the purchase discount.)

SUI has a full-time accountant and a computer-based accounting system. It records sales at the gross sales price and purchases at net cost and maintains subsidiary ledgers for accounts receivable, inventory, and accounts payable.

Instructions -

a. Briefly describe the opening cycle of a merchandising company. Identify the assets and liabilities directly affected by this cycle.

b. Prepare journal entries to record these transactions, assuming the SUI uses a perpetual inventory system.

c. Explain the information in part b that should be posted to subsidiary ledger accounts.